Sunday, March 28, 2010

The Inconvenient TRUTH

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the Bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst yourselves, and when you lost, you charged it to the Bank... Beyond question this great and powerful institution has been actively engaged in attempting to influence the elections of the public officers by means of its money...

You tell me that if I take the deposits from the Bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin. Should I let you go on, you will ruin fifty thousand families, and that would be my sin. You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, I will rout you out."

-Andrew Jackson on The Second Bank of the United States

Stop the madness! End The Fed! America will never get past this financial crisis unless and until the US Congress gets off their asses and passes legislation auditing the Fed, and subjecting it and the Treasury to scrupulous investigation.

Good-Bye: Truth Has Fallen and Taken Liberty With It [MUST READ]
Paul Craig Roberts
There was a time when the pen was mightier than the sword. That was a time when people believed in truth and regarded truth as an independent power and not as an auxiliary for government, class, race, ideological, personal, or financial interest.

Today Americans are ruled by propaganda. Americans have little regard for truth, little access to it, and little ability to recognize it.

Truth is an unwelcome entity. It is disturbing. It is off limits. Those who speak it run the risk of being branded “anti-American,” “anti-semite” or “conspiracy theorist.”

Truth is an inconvenience for government and for the interest groups whose campaign contributions control government.

Truth is an inconvenience for prosecutors who want convictions, not the discovery of innocence or guilt.

Truth is inconvenient for ideologues.

Gold is TRUE money, therefore Gold is the Truth. Is it any wonder then that Herculean effort has been expended by government to suppress the price of Gold, and silence the TRUTH?

For the better part of the last century, the United States led the industrialized nations through an unparalleled period of growth. These days, the only things in the developed world growing with any certainty are bureaucracies and the debts and deficits they invariably inflict upon those they were elected to serve.

After fifty years of credit expansion, the era of first world dominance is drawing to its climactic finale. And, as the characters turn and the plot twists, it is those in the developing nations who have some of the best seats in the house.

Let's peruse the program...

According to a report from the Congressional Budget Office released this week, Social Security will pay out more in benefits this year than it receives in payroll taxes. Last year's annual Social Security report projected revenue would more than cover payouts until at least 2016. The shortfall, this year, will be in the realm of $29 billion.

Unsurprisingly, economists expected a quicker, more robust recovery from the 2007-08 crisis, with unemployment to average just 8.2% last year, eventually rising to 8.8% in 2010. As one in ten working age Americans now know, those figures were far too optimistic. Official unemployment is now near 10% and, as we mentioned earlier in the week, the "U6" metric, which includes "discouraged" and "marginally attached" workers, is currently north of 17%. As always, it is difficult to overstate the magnitude of the feds' forecasting ineptitude.

Nevertheless, Stephen C. Goss, chief actuary of the Social Security Administration, expects we'll again see small surpluses in the safety net...but not until at least 2014...and only then on the provision that the economy recovers briskly from here on out.

But even if such a recovery were to magically materialize, Social Security still faces some insurmountable problems. Over the long haul, the scheme is nothing short of a ticking time bomb, with more and more retirees coming to depend on fewer and fewer taxpayers entering the work force.

As The New York Times reports: "[D]emographic forces are expected to overtake the fund, as more and more baby boomers leave the work force, stop paying into the program and start collecting their benefits. At that point, outlays will exceed revenue every year, no matter how well the economy performs."

Taken alone, the impending implosion of the Social Security Ponzi scheme is bad enough. Coupled with a few other prevailing economic headwinds of the day, it makes for a rather large iceberg in a very narrow pass. Perusing the news just this week, we came across the following data points of interest:

Figures from the United States Department of Commerce showed that, during the month of February, new home sales decreased 2.2% to an annual pace of 308,000 - a record low.

Still on the housing front, the Office of the Comptroller of the Currency revealed Friday that more than half (51.5%) of delinquent borrowers who've received loan modifications defaulted again after nine months. Why are they defaulting, you ask?

Figures from that same department made official what any person living above ground for the past year already knew - that personal income in 42 US states fell in 2009. Nevada and Wyoming were the worst hit, down 4.8% and 3.9% respectively. The District of Columbia, of course, snared a nice little gain.

Ever on the case when it comes to spending other people's money (after they've secured their own marbled cut), Washington proposed allowing borrowers who've lost their jobs to make substantially reduced repayments - or in some cases, no payments at all - for up to six months. TARP - read: you - will help cover those costs.

Still trying to plug the gap between the government's champagne taste and its malt liquor budget, the Treasury auctioned $74 billion in 5- and 7-year notes this week. Demand was flaccid, pushing the yield on the 10-year note up to 3.9%, it's highest since June. Think that's bad? Wait until they push another $1.6 trillion through this year...IN ADDITION to the debt that already needs to be rolled over.

Ah yes...we almost forgot: The Federal Government - the same Federal Government that carries around $100 trillion in unfunded liabilities for its existing welfare promises - pushed a $1 trillion healthcare bill through the House, adding the care of 35 million people to its books.

And yet, from this fetid swamp of economic filth sprouts a fĂȘted stock market recovery. How can this be? In short, it can't. The apparent divergence between the realities of Main Street and Wall Street is only visible when viewed under the microscope of day-to-day trading activity. The telescopic lens of (even relatively recent) history gives a better perspective.

Certainly, from a stock market perspective, the last decade has been a veritable cipher...a zero.

The Dow Jones Industrial Average, for example, began the decade a few points shy of 11,500, almost 700 points above where it sits today...even after the past year's momentous rally. After factoring in inflation, fees and commissions, most investors in US stocks would be happy to have achieved a zero return on their money over the past ten years.

Meanwhile, on the other side of the stage, many of the world's emerging markets have provided investors with some very handsome, money multiplying years.

India's Sensex 30 Index, for instance, more than tripled over the past decade. From around 5,000 back on January 1, 2000, the measure of India's 30 bluest chip companies now hovers around 17,000. Brazil's Bovespa has similarly outpaced the more mature US markets. Kicking off the new millennium a shade above 16,000 points, South America's largest index was lately seen bumping up against the 70,000-point mark. South Korea's Kospi has more than doubled during the same time. Argentina's Merval quintupled. The list goes on...

Although the intraday volatility is typically higher in emerging markets, it is clear that these developing countries have more than just a gentle breeze at their backs. Gone are the days, therefore, when an investor could afford to simply dismiss out of hand the wealth generating potential that lies on foreign shores.

Slowly, the tides of economic fortune are turning. During the fifty- year post-war credit flood, developing nations got busy building ships. The developed world simply looked on, laughing as they filled their own vessels with junk they couldn't afford. A lot of good it will be at the bottom of the ocean.

-Joel Bowman for The Daily Reckoning

14 Facts About The Federal Deficit That Will Blow Your Mind[SCARY]
by Michael Snyder
The U.S. government is currently creating one of the most colossal monuments in the history of the world. It is the U.S. national debt, and it threatens to literally destroy the American way of life. For decades now, this generation has been recklessly spending the money of future generations and has been convinced that they have been getting away with it.

Americans have been enjoying an obscenely high standard of living, but the party is almost over and the day of reckoning is fast approaching. It has been a great party, but it was fueled by the biggest mountain of debt in the history of the world. As many of us know, it can be extremely fun running up a huge credit card bill, but it can be even more painful to pay it off. Now our national "credit card bills" are starting to arrive and nobody really seems to know what to do. The U.S. national debt will forever be a lasting reminder of the greed and recklessness of this generation. The truth is that the United States is NOT the "richest and most powerful nation" in the world. Rather, we are a spoiled, bloated, greedy nation that has run up a debt so big that words simply do not do it justice.

In fact, the U.S. national debt is so bizarre that it is hard to know whether to laugh about it or cry about it. For today at least, we will have some fun with it.

THE Most Important Chart of the CENTURY[MUST SEE]
By Nathan Martin
This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.

The Asians/Indians Are Aggressively Buying Gold While America Sells on the Cheap
by Dave Kranzler, The Golden Truth
"JB" is an articulate, witty and perspicacious metals market professional who shares news and insight on the eastern hemisphere physical gold/silver markets with subscribers to Below I've pasted his commentary on the eastern markets - he gets his information directly from traders and news reports:

Here's Thursday's commentary based on the overnight markets in the east:

Intriguingly, so also may be China [buying aggressively]. Mitsui-HK today explicitly says: "While euro tried to pull the yellow metal lower, Chinese buying wanted to push it higher”...More concretely, the Shanghai market closed at a $6.08 premium to world gold of $1,091.98, the second day of unusually high premiums. Indian ex-duty premiums: AM $8.18, PM $7.85, with world gold at $1094.91 and $1098.04. Lavish for legal imports.

[please note, the presence of premiums this high in China and India is consistent with the fact that buyers in those countries are scrambling to buy as much gold as they can. While premiums are required for importation, premiums this high are not common. Same with Viet Nam]

Here's the overnight action reported this morning:

Early on Friday morning local Vietnam gold stood at a $29.10 premium to world gold of $1,091.80 (Thursday $27.89/$1,087.20). Private communications today suggest that Chinese gold imports have indeed grown appreciably lately. Also since last Friday Istanbul gold premiums (which are awkward to measure) have been clearly supportive of Turkish gold imports: the kilo bar premium today was an import-friendly $9.42..

Jewellers across Asia chased gold bars after bullion prices dropped more than $10 this week, while main consumer India was stocking up as the wedding season begins again in April, dealers said on Friday…"We are actually running out of stocks. There's not enough time to replenish gold bars. Thailand is the hottest buyer. Their demand is really good because they are quite price-sensitive," a physical dealer in Singapore said…Premiums were steady at 80 cents to $1 an ounce to the spot London prices in Singapore, their highest since early February, but they could rise next week because of the strong demand and tight supplies.”

The quote underlined above comes from this reuters report: Asia chasing gold while it's under $1100

All of the above market color is backed up by this report out of Mumbai, which was posted at days ago:

Gold refineries are facing a strange problem in India now. There is no yellow metal for them to process now. When the gold boom was at its peak in 2008 and 2009, the quantity of scrap gold used to come to the market was very high and many refiners had increased the capacity to process the scrap gold. But, time has changed and the scrap gold flow to these refineries has halted. (Here's the link: LINK)

The moral of this is that just because the U.S.-centric media, financial advisors, brokers and politicians believe that gold is a useless, barbaric relic not worthy of investment, the rest of world is accumulating as much as they can before the REAL fireworks begin in the price. Don't forget, gold has appreciated, in the face of extreme Fed/BOE/ECB intervention, every year for NINE YEARS against ALL fiat currencies - and an average of about 16%/yr. at that.

Gold Cheerleader
by Adam, Gold Versus Paper
Things are as bullish as ever in the Gold market. I continue to believe that we are on the threshold of a major move higher in Gold and Gold stocks and that the fall was just a warm up. The correction has certainly dragged on longer than I thought it would, but Gold is simply building a bigger and stronger base for a more powerful upward move in my opinion.

Unlike most, I see Gold and Gold stocks launching higher and I think the general stock market will be falling during this time. It happened in 2007-March 2008, the 2001-early 2003 time frame, 1973-1974 and 1930-1932. In other words, Gold and Gold stocks' biggest cyclical bull market moves in the last century were during nasty bear markets. All those who say Gold stocks are going to fall with the general markets are thinking only of the Great Fall Panic of 2008 and forgetting the illustrious history of Gold during secular stock bear markets like the one we are in now.

The foreign physical markets are getting tight in Gold again, always a good sign. The U.S. Dollar is strenuously overbought and yet Gold has held its ground in U.S. Dollar terms. The long end of the U.S. bond market looks like it wants to break down over the short to intermediate term. Everything is lined up for a big bull run in Gold, the ultimate money. Someone accused me of being a Gold cheerleader the other day - Lord knows we could use a few more in this mad paperbug world. From my point of view, why would one not be a Gold cheerleader during a secular Gold bull market after a healthy correction?

A London trader walks the CFTC through a silver manipulation in advance
Additional Statement by Bill Murphy, Chairman
Gold Anti-Trust Action Committee

to the U.S. Commodity Futures Trading Commission
Washington, D.C., March 25, 2010

On March 23, 2010, GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Maguire is a metals trader in London. He has been told first-hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets, and they have bragged to how they make money doing so.

In November 2009 Maguire contacted the CFTC enforcement division to report this criminal activity. He described in detail the way JPMorgan Chase signals to the market its intention to take down the precious metals. Traders recognize these signals and make money shorting the metals alongside JPM. Maguire explained how there are routine market manipulations at the time of option expiry, non-farm payroll data releases, and COMEX contract rollover, as well as ad-hoc events.

On February 3 Maguire gave two days' warning by e-mail to Eliud Ramirez, a senior investigator for the CFTC's Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. On February 5, as market events played out exactly as predicted, further e-mails were sent to Ramirez while the manipulation was in progress.

It would not be possible to predict such a market move unless the market was manipulated.

AND THEN THIS HAPPENED the very next day:

GATA Whistleblower Andrew Maguire Injured in Hit and Run Car Accident
from Adrian Douglas, Le Metropole Cafe
On March 25th at the CFTC Public Hearing on Precious Metals GATA made a dramatic revelation of a whistleblower source, Andrew Maguire, who has first hand evidence of
gold and silver market manipulation by JPMorganChase and who has even tipped off the CFTC in advance of manipulative attacks on gold and silver. Just as in the Madoff case the regulator has done nothing to stop such manipulation.

On March 26th while out shopping with his wife, Mr. Maguire's car was hit by a car careening out of a side road. The driver of the vehicle then tried to escape. When a pedestrian eye-witness attempted to block the driver's escape he accelerated at him and would have hit
him had the pedestrian not jumped out of the way. The car then hit two other cars in escaping. The driver was apprehended by the police after police helicopters were called in and following a high speed chase.

Andrew and his wife were hospitalized with minor injuries. They were discharged from hospital today and should make a full recovery.

Former Goldman Commodities Research Analyst Confirms LMBA OTC Gold Market Is "Paper Gold" Ponzi[a must, MUST READ]
from Zero Hedge
When we put up a link to last week's CFTC hearing webcast little did we know that it would end up being the veritable (physical) gold mine (no pun intended) of information about what really transpires in the commodities market. First, we obtained direct evidence from Andrew Maguire (who may or may not have been the target of an attempt at "bodily harm" as reported yesterday) of extensive manipulation in the silver market. Today, Adrian Douglas, director of GATA, adds to the mountain of evidence that the commodities market, and the CFTC, stand behind what is potentially the biggest market manipulation scheme in the history of capital markets (we are assuming for the time being that all allegations of the Fed manipulating the broader equity and credit markets are completely baseless). Using the testimony of a clueless Jeffrey Christian, formerly a staffer at the Commodities Research Group in the Goldman Sachs Investment Research Department and now head and founder of the CPM Group, Douglas confirms that the "LBMA trades over 100 times the amount of gold it actually has to back the trades."

Christian, who describes himself as "one of the world’s foremost authorities on the markets for precious metals" yet, in the words of Gary Gensler, said "that the bullion banks had large shorts to hedge themselves selling elsewhere- how do you short something to cover a sale, I didn’t quite follow that?" and proves that current and former Goldman bankers are some of the most arrogant people alive, assuming that everyone else is an idiot and will buy whatever explanation is presented just because the CV says Goldman Sachs. Yet Christian confirms that the gold market is basically a ponzi: "in the “physical market” as the market uses that term, there is much more metal than that…there is a hundred times what there is." And there you have it: as Douglas eloquently summarizes: "the giant Ponzi trading of gold ledger entries can be sustained only if there is never a liquidity crisis in the REAL physical market. If someone asks for gold and there isn’t any the default would trigger the biggest “bank run” and default in history. This is, of course, why the Central Banks lease their gold or sell it outright to the bullion banks when they are squeezed by high demand for REAL physical gold that can not be met from their own stocks" and concludes "Almost every day we hear of a new financial fraud that has been exposed. The gold and silver market fraud is likely to be bigger than all of them. Investors in their droves, who have purchased gold in good faith in “unallocated accounts”, are going to demand delivery of their metal. They will then discover that there is only one ounce for every one hundred ounces claimed. They will find out they are “unsecured creditors”.

For those of you who missed the CFTC hearing, here are two of the must-watch clips. In the first one, Adrian Douglas introduces the underlying concerns about the Ponzi nature of the LBMA hedging situation, in which a wholesale rush to "physical delivery" would result in a one hundred fold dilution of gold holdings, and a 99% result of unsecured creditor claims (good luck collecting on that particular bankruptcy). We also meet Jeffrey Christian, formerly of Goldman and currently of CPM, in which not only does the "expert" state that a bullion bank short is hedged by further shorting, but confirms Douglas' and GATA's previous claims that the "physical" market, as defined, is a joke, as the OTC market treats gold purely as a financial asset, essentially conforming to the precepts of fractional reserve banking. As Douglas notes "He confirms that the LBMA trades hundreds of times the real underlying physical. This is even a higher estimate than I have previously made! It is, as I asserted before the Commission, a giant Ponzi Scheme."

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